May 15, 2008

High feed costs cut US fed cattle supply

The number of US cattle on feed as of May 1 will be lower than 2007 levels due to record-high feed costs that limited placements and active marketings that reduced feedlot supplies, analysts said in predicting the USDA cattle-on-feed report.

As cattle feeders marketed aggressively and placed new cattle cautiously, the number of cattle on feed decreased from April 1 to May 1, said Bob Price, president of North America Risk Management Services Inc.

This would be the first time since November 1, 2007 that feedlot supplies would be down from the previous year, analysts said.

Corn futures at the Chicago Board of Trade have increased to a record of more than US$6 a bushel this year, pushing up cattle production costs. Because of this, feedlots have lost money, which caused them to feed fewer cattle.

Estimates of placements varied due to contrary factors influencing them. High cost of feed would normally reduce placements, but cash feeder prices were rising during the month and that could indicate that some feedlots were actually placing cattle.

High feed and fuel costs are likely to slow placement rates but feeder cattle prices proved robust in those circumstances, said Dan Vaught, livestock analyst for Wachovia Securities.

Some indicators suggest placements were down about 15 percent, while another predictor implied a decline of only 3 percent, said Vaught.